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Ammonia Prices Fall, But Sulphur Costs Still Hurt
10 Aug
Summary
- Ammonia prices have significantly decreased since late June, offering some relief.
- Elevated sulphur costs continue to negatively impact fertilizer companies' margins.
- Supply disruptions in West Asia are a major factor in raw material price volatility.
Ammonia prices have seen a substantial decline since late June, with benchmark contracts falling significantly. This reduction offers some relief to fertilizer manufacturers, particularly non-urea producers, as a major input cost has eased. Analysts note that while the drop in ammonia prices is meaningful, it provides only marginal relief for complex fertilizer companies where ammonia contributes less than 20% of costs.
Despite the fall in ammonia prices, elevated sulphur costs remain a significant challenge, continuing to weigh on profit margins. This is compounded by supply disruptions and production cuts stemming from the West Asia conflict, which have impacted the availability of key inputs like sulphur and ammonia. The tight availability of sulphur is a particular pain point for the industry.
The outlook for the sector's earnings remains closely tied to raw material prices and government subsidies. Companies like Coromandel International and Paradeep Phosphates are expected to benefit from lower ammonia costs, though high sulphur and phosphoric acid prices offset some of these gains. Investors are advised to consider staggered investments due to the sector's dependence on volatile raw material markets.
